2011 (2) TMI 57 - AT - Service Tax

Demand - input service credit assessee availed services used in relation of the manufacture of final products as well as in relation to selling and marketing of final products - appellants are not maintaining separate account of input service credit for dutiable as well as exempted goods - contention of the department that as the services are common input service therefore whole of the credit cannot be allowed - appellants are not entitled to avail input service credit in full but they have to reverse input service credit proportionately matter remanded back to adjudicating authority to requantify the amount of inadmissible input service credit - appeals disposed of

Summary

Issues Involved:
1. Eligibility of CENVAT credit on input services for manufacturing both dutiable and exempted goods.
2. Interpretation of Rule 6 of the CENVAT Credit Rules, 2004 regarding maintaining separate accounts for input services.
3. Reversal of input service credit proportionately or paying 10% of the value of exempted final products.

Issue 1: Eligibility of CENVAT credit on input services:
The case involved appeals by Colgate Palmolive India Ltd. against demand confirmation for inadmissible input service credit during June 2005 to October 2006. The company availed various services for manufacturing and marketing final products. The main contention was whether they are entitled to full credit of service tax paid on common input services used for both dutiable and exempted goods.

Issue 2: Interpretation of Rule 6 of CENVAT Credit Rules:
The department argued that Rule 6 of the CENVAT Credit Rules, 2004 mandates the reversal of credit if separate accounts for dutiable and exempted goods are not maintained. The rule specifies conditions for maintaining separate accounts and the consequences if such accounts are not kept. The appellant argued that all input services were common to their business and not exclusively used for exempted goods, hence full credit should be allowed.

Issue 3: Reversal of input service credit:
The tribunal examined the provisions of Rule 6 and held that since the appellant did not maintain separate accounts, they must either reverse proportionate input service credit or pay 10% of the value of exempted final products at the time of clearance. The tribunal agreed that the appellant could avail credit for goods manufactured by contract manufacturers based on MRP. The case was remanded to the adjudicating authority for requantification of inadmissible credit and directed the appellant to pay within 30 days of the decision.

In conclusion, the judgment clarified the application of Rule 6 of the CENVAT Credit Rules, 2004 in cases where manufacturers deal with both dutiable and exempted goods. It emphasized the importance of maintaining separate accounts for input services and outlined the consequences of not doing so. The tribunal ruled that the appellant must reverse proportionate input service credit or pay 10% of the value of exempted final products. The decision highlighted the need for compliance with tax credit rules and provided a framework for resolving disputes related to input service credit eligibility.